How a Chinese e-retailer influences Chinese factories

LightInTheBox.com works with suppliers to produce smaller batches of products more quickly, aiming to respond to trends the e-retailer spots by crawling web sites and social networks.

Alan Guo tells his employees not to think of LightInTheBox.com as a Chinese company, but as a China-originated company with a global vision. And that vision is to quickly detect new online trends, use China’s vast manufacturing base to produce hot products at low prices, and then sell them to online shoppers, mainly outside of China.

LightInTheBox.com certainly did not discover that products could be manufactured at low cost in China, says Guo, the company’s chairman and CEO. Instead, he says, the Beijing-based retailer sets itself apart by working with Chinese factories to produce new products, often in smaller batches than they did before, in response to shifts in consumer preferences.

“We source directly from China small-batch orders from factories, so we can provide a lot of variety to consumers, and customization in many cases,” says Guo, who launched LightInTheBox.com in the 2007 after holding executive positions with Google Inc. and Amazon.com Inc.

The e-retailer has built technology designed to detect trends that others may not yet have recognized. “We developed proprietary technology based on Internet crawlers to crawl many web sites to identify social signals that identify what kind of products are interesting to people at a given time in a given geography,” he says.

That led the e-retailer to spot five years ago growing demand for LED faucets, which have lights on them that turn color when the water temperature changes. “That became an instant best seller,” Guo says. While many others now offer those faucets, even today LightInTheBox appears prominently in Google natural and paid search results for the product.

In order to respond to demand that’s just starting to bubble up, Guo has had to convince Chinese factories that they can produce a new item in smaller quantities than they would require if, for example, a big U.S. retailer like Wal-Mart was placing an order.

“When we started ordering faucets from manufacturers, they kept telling us they need to make a minimum batch of 5,000 or 10,000 units,” Guo recalls. “I asked them why, and they said the mold is very expensive. Why is the mold so expensive? They said because they need to make the mold sustainable for 10,000 pieces.” Guo says he has convinced factories to produce less expensive molds that could produce 100 pieces, so that he can test out new products.

“People want diversity and things are moving fast,” he says. “Being flexible is increasingly more powerful than producing at big scale and cheap.”

From the beginning, Guo’s idea was to sell China-made products overseas, especially items like wedding and prom dresses that required the kind of custom tailoring that Chinese factories could do at far lower costs than operations in developing countries. While the company has a Chinese-language site that targets Chinese shoppers, the company derived 62.5% of its revenue from Europe in 2013 and 18.8% from North America.

The company’s main e-commerce sites—LightInTheBox.com for apparel and home goods and MiniInTheBox.com for electronics and gadgets—are translated into 27 languages. Not only does the web-only retailer translate product descriptions into all 27 languages, it also provides native-language customer service and marketing in those languages, Guo says.

The global view is crucial to his strategy, Guo says, because it allows him to sell profitably specialized products that may not generate enough demand in any market to make them profitable for store-based retailers to stock them. “There are a lot of long-tail products that may not have a large audience in any geographic location, so that it is intrinsically difficult for offline distribution,” he says. “However, if we are smart in aggregating long-tail demand in a global sense we can make a good business out of those products.”

To provide customer service for consumers in many countries, LightInTheBox.com, which had 1,426 employees at the end of 2013, hires Chinese graduates with foreign-language skills and individuals from foreign countries who have come to China to work, Guo says. The company supplements those agents working in China with part-time workers, mainly residing in Europe, who can provide local-language service during hours when China-based workers are not available.

LightInTheBox.com has grown rapidly, increasing its revenue from $26.1 million in 2009 to $292.4 million in 2013, when it served 4.29 million consumers and generated a third of its sales from repeat customers. But the company has yet to turn an annual profit, booking a net loss of $4.8 million in 2013.

The company went public on the New York Stock Exchange in June 2013, raising $79 million. But the e-retailer’s stock price has been on a roller-coaster ride since then, hitting a high of over $23 in the summer of 2013, but hovering around $6 recently.

A big factor in the falling stock price was a falloff in sales of wedding dresses, Guo says. He says the company made mistakes last year in introducing new, higher-priced designs that didn’t catch on, and faced growing competition from both Chinese companies and brands in other countries that lowered their prices in response to the growing online competition from China.

Guo says the company has changed the management team in the wedding area, introduced new lower-cost designs and in June hired a new design chief for wedding and special-occasion dresses, Edric Woo. Woo formerly worked for Maggie Sottero Designs LLC, a well-known brand with offices in Australia and the United States.